Question in Preferences and Utility

[knowpraveen]

Find the solution. Thanks in advance.

[Sris]

since the utility function is min he will always consume x1=x2

ist price scheme...
2x1+x2=M
2X1+X1=M
3X1=M
X1=M/3

2ND PRICE SCHEME...
(2-THETA)X1+X2+T=M
(2-THETA)X1+X1+T=M
(3-THETA)X1=M-T
X1=M-T/3-THETA

HE WOULD BE INDIFFERENT IF HE GETS TO CONSUME SAME AMOUNT OF X1 UNDER BOTH SCHEMES

EQUATE 1 AND 2...YOU WILL GET UR ANSWER AS (B)

[knowpraveen]

Thanks a lot for that. Great help. :) 

On Mon, Jun 8, 2015 at 6:45 PM, Sris [via Discussion forum] <[hidden email]> wrote:

since the utility function is min he will always consume x1=x2

ist price scheme...
2x1+x2=M
2X1+X1=M
3X1=M
X1=M/3

2ND PRICE SCHEME...
(2-THETA)X1+X2+T=M
(2-THETA)X1+X1+T=M
(3-THETA)X1=M-T
X1=M-T/3-THETA

HE WOULD BE INDIFFERENT IF HE GETS TO CONSUME SAME AMOUNT OF X1 UNDER BOTH SCHEMES

EQUATE 1 AND 2...YOU WILL GET UR ANSWER AS (B)

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